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School of Business Administration ACT 330 International Financial Reporting Standards Assessment Instrument Individual Assignment 1 (25 marks) Due Date: May 25 ,2016 (before 8 pm) Instructor: Professor Mohamed Ibrahim This assignment addresses the following course learning outcome (CLO). Course Learning Outcome Question 3. Apply International Financial Reporting Standards (IFRS) to different asset items and reconcile their results with GAAP. Question 1 (all parts) Instructions Answer each of the following Questions and show all your workings. Please type your answers and send them in a file that carries your name as attachment by e-mail to my email address (mibrahim@cud.ac.ae). Use your official CUD mail. I will not provide feedback to those who send their assignments through Hotmail, or Gmail or yahoo or and the like. Do not use a cover page. Do not use color. Just use black and 12 pts font. You will be penalized for not following instructions. Part 1 (12 marks) White Company produces a single product called H. The production cycle takes on average one month to complete. Product H is the first product the company introduced to the market several years ago. The Company's normal level of production per month for the product H is 200,000 units. The monthly total manufacturing fixed overhead costs is AED 100,000. These fixed costs are allocated to the units produced each month based on the number of units. The Company produced 150,000 units in 1 November 2015 and sold 100,000 in December 2015. The following costs were incurred in November 2015 in relation to the production of the product H (all amounts are in dirhams): Cost item Amount 1 Purchase price of the raw material used during April 100,000 2 Transportation and handling costs of used material in April 10,000 3 Cost of direct labor 150,000 4 Allocated variable overhead 150,000 5 Storage costs related to finished products before sale 15,000 6 Interest costs on borrowed funds to pay for the raw material 13,000 7 Cost of abnormal wasted material during production (included in item 1 above 5,000 The sale price of a unit sold of product H was 10 dirham. The Company follows the rules of IFRS for the purposes of preparing its financial statements. On December 31, 2015, the Company estimated the selling costs for existing finished goods to be 60,000 dirhams Required: (a) Analyze the above cost items and determine the amount of the inventory of finished goods that would be reported on the balance sheet at December 31, 2015 according to IAS # 2. (6 marks) (b) Construct the necessary journal entries to record the above transactions and events assuming the Company uses the perpetual inventory system (6 marks) Part 2 (13 marks) Green Valley Company purchased specialized equipment for 20 million dirhams on December 24, 2013. The Company borrowed on the same day 5 million dirhams for 10 years at 8% annual interest rate to partially finance the acquisition of the equipment. The interest is to be paid annually in January of each year while the principle amount will be paid on Dec. 31, 2023. The following additional costs were incurred in the process on Dec. 31, 2013: Equipment registration costs 600,000 Installation and testing costs 400,000 The Company also signed a maintenance contract for 5 years with amount of 100,000 dirham annually. Estimated useful life of the equipment is 15 years with a net at the end of the useful life of 10,000 dirhams (difference between salvage value and removal costs). The Company uses the straight-line method of depreciation for the equipment. On January 1, 2014 the equipment was ready for use in the Company's operations. Required: 1. Analyze the above case and determine the proper cost of the equipment as of January 1, 2014 (4 marks). 2. Construct the necessary journal entries to recognize the above transactions and events on the books of Green Valley for 2013 and 2014 (9 marks) 2